Being Bullish on Iraqi Banking

With so much gloomy news around, it is good to find some analysis that shows the other side of the story: A report just issued by Sansar Capital suggests that shares in Iraq’s banking sector may be ripe for a re-rating.

Key to the report’s findings is the argument that Iraq’s banks are exceptionally well capitalised, having been forced to raise significant funding to comply with the “arbitrary” rules set by the Central Bank of Iraq (CBI).

To put it another way, they are sitting on a huge pile of cash that is not working for them, or more accurately, not yet working for them. This should enable to the banks to grow rapidly in an underbanked economy, while adjusting the return on equity (RoE) to allow for this gives some rather attractive numbers.

The report also finds that some of the most efficient banks are trading on the most attractive valuations, which may be caused by unsophisticated investors focusing on the nominal share price, while ignoring the capital and future earnings per share.

Taken together, this could represent a buying opportunity for investors, but they should, of course, form their own opinions on these metrics. The full report can be read here, as part of Iraq Business News reports service.